Tencent Marketing Insights (TMI) has released “A New Chapter to Digital Future – 2023 Report on Digital Trends of China’s Luxury Market” to explore the more resilient Chinese market consumer behavior changes and new opportunities under the momentum of global luxury market recovery. In the past few years, consumers’ online digital experience has been deepening and irreversible. When the consumer trend returns, how to use digital capabilities to help brands talk to consumers and choose the most suitable marketing soil for their sustainable development to enhance brand visibility and business growth in a roll? In 2023, the Ministry of Commerce has positioned it as the “Year of Consumption Boost,” driven by multiple factors such as the recovery of the tourism industry, and the support of consumption policies. As a result, the vitality of the luxury market has recovered rapidly at the global level. After the storm, the luxury industry transitioned to a stable state, with brand visibility gradually emerging from chaos. As an important growth engine for the global luxury market, China will further unleash its growth potential. In the long-term digital anti-pressure environment, the entire industry has ushered in a new chapter of the digital future.
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On June 21, Tencent Marketing Insights (TMI) with analysis from Boston Consulting Group (BCG) released “A New Chapter to Digital Future – 2023 Report on Digital Trends of China’s Luxury Market” in Cannes. This report not only captures the growth of China’s luxury market but also highlights the empowerment and influence of the Chinese market for brands under the long-term digital construction of brands.
New Vitality to Drive Future Growth
The overall market is robust, dynamic and teeming with growth opportunities. The report indicates that driven by positive sentiments such as living-in-the-moment mentality, growing demand, consumption upgrades from the new generation, favorable policies and environment, and resurgence of social occasions, luxury spending by Chinese consumers is projected to grow by 15-20 percent and reach 550 billion RMB by 2023. Among them, the mainland consumer market will grow slightly by 0-5 percent to 450 billion RMB driven by better service, improved domestic supply, and the narrowing price gap between domestic and overseas markets. While there is anticipated to be some recovery in outside mainland spending as travel resumes, it is unlikely to return to the level seen in 2019.
In the market growth cycle, there have been changes in the main contributors on the consumption side. The heavy spenders continue to be the most significant force, comprising only 11 percent of total consumers but accounting for 40 percent of the total spending. Additionally, the consumption momentum of the customer group aged 30 and below and the second-tier and below customer group is increasing becoming an emerging force and future growth momentum of the luxury market.
“The underlying forces behind luxury spending is upper middle class and affluent consumers in China. We find despite the up and down in the macro environment, this group of consumers are relatively intact,” said Veronique Yang, BCG Managing Director and Senior Partner.“The luxury experiences in China are almost on par with the international markets right now.”
In response to this change, brands need to tap the consumption potential of three customer groups. Heavy spenders are most attracted to brand events and brand advertisements, valuing quality and product practicality, and making purchase decisions based on self-gratification. GenZ (post-95s) is driven by dynamic product choices with design and fashion elements, displaying less brand loyalty and being more influenced by brand online marketing dynamics. Customers from tier 2 and below cities exhibit characteristics of a younger generation and medium spenders, placing more emphasis on online creativity and localized content, with the Weixin ecosystem being their primary touchpoint.
In this regard, Lin An, BCG Managing Director and Partner, said that we need to know what exactly are the key consumer journeys of our brand, what’s the role of all the diverse complicated touchpoints, how to allocate resources, and what kind of products and service to provide. We believe this group of consumers are the future drivers of growth in China, how to capture them and how to activate them will be a very challenging question for brands.
Digital Evolution to Explore Unique Dialogue Fields
Although Chinese consumers have different forms, in terms of channels, digitalization has penetrated the consumption habits of almost 100 percent of the customer base. According to Tencent’s observation, the digitization degree of Chinese consumers has deepened in the past three years, and the daily time spent on mobile Internet is nearly 6 hours, which is 28 percent longer than in 2019; commodity e-commerce sales accounted for 27 percent of total retail sales, an increase of 29 percent from 2019; the share of users using mobile payment increased by 20 percent to 87 percent compared to 2019, and all three of the above are above the global average. Under this irreversible digital trend, the era of brand marketing we live in has officially changed to an era of consumer demand.
Today, the consumer interaction environment is highly digital, especially when it comes to purchasing behavior. In Western, the brand’s official websites are dominant, accounting for 38 percent of European online sales coming from brand.com; while EC platforms are dominant in China, such as Tmall, Jingdong and other platforms occupy the main position, but an obvious phenomenon is that its share is decreasing, from 83 percent in 2019 to 74 percent in 2022, on the contrary, more opportunities flow to social commerce platforms.
Under such a trend, Weixin Mini Program as a booming channel, is forming a new model of Brand.com, and providing high adaptation soil suitable for the development of different brand types for traditional retailers, international brands, and emerging brands. Kiki Fan, General Manager of Industrial Sales Operations, Tencent Marketing Solution, pointed out that because of the variety of social connections, it forms a new model of brand.com, integrating the functions of chat, browse, read, watch, search, purchase and service. Luxury brands could position the assortment to connect with consumers in the Mini Program, and all these touchpoints have been developed in the Weixin ecosystem.
At the same time, Weixin Search, Weixin Channel and other diversified touchpoints help the brand to develop cooperatively in the Weixin ecosystem, while the content side and the deep link between the server and the user jointly build a complete Brand.com, and upgrade to the brand’s infrastructure that can precipitate the brand-owned assets.
Digital Upgrading Contributes to Sustainable Development
As the most sought-after digital ecosystem among luxury brands in China, the Tencent ecosystem, with its powerful digital matrix, enables brands to enhance their cross-platform marketing. By leveraging this ecosystem, they can effectively reach a larger audience across various vertical networks and connect with high-quality potential consumers by capitalizing on cross-platform synergies.
Tencent incorporates the functionalities of instant messaging, video sharing platforms, online streaming platforms, searching platforms, e-commerce platforms, and short-form video platforms. Tencent’s evolving ecosystem includes creative exposure, private domain, E-CRM service, social video, social search, KOL seeding, etc., covering every step of the luxury consumer journey through awareness, consideration, purchase and advocacy, and serves two major purposes of brand building and business growth in the marketing process.
Weixin, the indispensable social platform in China, boasts over 1 billion monthly active Chinese users who spend an average of over 70 minutes per day within the app. It offers an all-in-one solution for brands, catering to their diverse needs.
As consumers’ perception of brands is becoming digital, to precipitate long-term brand equity and have a stronger influence on the new generation, Tencent helps brands to make brand building from festival marketing, event marketing, and youth activation.
According to Tencent Marketing Insights, social gifting rebounded to the top 10 factors of luxury purchases. To meet the needs of consumers, love and gifting seasons have a great upsurge in Weixin. In the 5 social love seasons, the total search volume of luxury brands exceeded 50 times that of normal times. Brands can broaden the communication scene with consumers through innovative content, combining Chinese cultural and social DNA, and expanding gifting seasons to deepen the imprint of consumers.
In addition, the high-quality content of social video platforms is on trend. Weixin Channel has more than 800 million monthly active users, including more than 137 million luxury industrial users. With such a huge potential user base, brands have more social-driven, through T-live Maison, carrying out fashion shows and exhibitions to enhance viewability and bring big exposure in a short time(1h).
Tencent Marketing Insights show that up to 75 percent of new luxury buyers are under the age of 30. In the face of this opportunity market, brands can seize the new frontier of the Chinese market through the content and technology in the Tencent ecosystem, and use QQ Music, Super QQ show, Tencent Games, and other young communication methods to deepen the link with youth activation.
On the other hand, Tencent Marketing Solution is also helping luxury brands achieve business growth. Weixin Mini Program is like a super APP of brand.com, rooted in Weixin to maximize user reach, with convenient access and sharing, which has multi-touchpoints to assist LTV operation and help brands precipitate their self-owned user assets.
At the same time, rising bidding advertising effectively enlarges online business. The report shows that bidding advertising investment has brought 49 percent of sales growth, while Weixin Search is the efficient path to connect consumers and benefit growth. Under the influence of digital channels, no matter the pre-trip seeding or service-providing on a trip, it has driven luxury consumption outside the mainland.
In summary, based on Tencent’s digital technology and integrated marketing touchpoints, brands can better convey luxury aesthetics in this soil, establish meaningful connections with consumers, and drive asset recycling and business growth through digital operations. With Tencent’s two-pronged approach, luxury brands are breaking boundaries and thriving in the new digital era of China.
According to Dan Shu, Head of the Luxury and Beauty Goods Industry of Tencent Marketing Solution, “For the long-term development of luxury brands, we realize that we should focus more on brand assets than just sales volume by promotion, so we are doing the sustainable work to formulate sustainable strategies for luxury brands in Tencent ecology.”
Based on Tencent’s omni-operation ecosystem, brands can leverage its inherent advantages to build their branding, connect with consumers, and drive business growth through strong content and high-quality customer groups. Under the digital wave, the higher the level of brand digitalization, the greater the market competitiveness will undoubtedly be.
As a luxury and beauty digital global business platform, Tencent aims to assist brands in their digital construction, redefine brand value and achieve sustainable growth through four core values: immersive brand experiences, creative breakthroughs, customer-centric engagement, and valuable business growth.